Study On The Operability Of Cross-default Clauses In Bond Contracts

In recent years,the domestic bond market has flourished.Before 2014,the domestic bond market situation was very good,because there was no default in bonds,and each bond could be redeemed at the end.However,the occurrence of the “11Super Day Debt” default in 2014 means that bond defaults have appeared in the domestic bond market.According to statistics from Everbright Securities,from 2014 to November 2018,a total of 205 bonds issued by 91 domestic entities in the domestic bond market(only inter-bank,exchange-traded bonds)were subject to default.As the economic form changes,bond defaults are also increasing,and gradually become normalized.In the case of a majority of bond defaults,the issue of disposal after default is particularly important.The existing domestic bond default disposal mechanism includes default claims litigation,bankruptcy litigation,guarantor payment system,disposal of collateral system and debt restructuring.In the existing disposal mechanism,the restriction clause in the bond contract that has the effect of agreeing on the after-effects in advance has played an important role.According to Guo Fengand Weibo Yan's article "On the Restrictive Clause of Bonds And the Protection of the Interests of Bondholders",the restrictive clause in the bond contract refers to special terms to agree about the specific behavior of the bond issuer as stipulated in the contract to protect bond holdings.Because of its operability for ex ante-prevention and post-disposal,it is regarded as one of the powerful protection measures for the protection of bondholders' interests in the mature bond market.Then,the cross-default clause as a one of the restrictive clauses,must play an indelible role in the protection of bondholders' rights.However,due to the government's rigid redemption in the domestic bond market in the past decades,bondholders believe that bondholders' rights are not necessary for risk and protection.The occurrence of the “11 Super Day Debt” default event in 2014 and the subsequent increase in defaults have made bondholders pay more and more attention to the protection of their rights and interests.There are many ways to protect the interests of bondholders,but the confirmation of the bondholder's identity comes from the bond contract itself signed by the bondholder and the issuer.Therefore,returning to the bond contract itself is particularly important to study the application of cross-default clauses in bond contracts.One of the more concerned and important issues in practice is how to be identified in the event of a dispute.Therefore,this paper will analyze the existing jurisprudence,integrate domestic and foreign literature,and discuss the specific setting methods of cross-default clauses in bond contracts.There are three main research methods in this paper:(i)Literature Research Method: through the collation and analysis of the existing literature on bond default,restriction clauses and cross-default clauses,and this will lay a theoretical foundation for this paper;(ii)Comparative Analysis Method: because the domestic bond market has less application to cross-default clauses,the paper analyzes the specific application of cross-default clauses in domestic lending contracts by means ofcomparative analysis,better to improve the application of cross-default clauses in domestic bond contracts;(iii)Case Analysis Method: this article contains a summary and analysis of a large number of existing case judgments,including cross-default clauses in loan contract dispute judgments and expected breach of contract,uneasy defense rights,cross-default clauses in bond transaction disputes,to sum up the specific setting of the cross-default clause in the bond contract and try to improve it.At present,the application of cross-default clauses in domestic bonds is very small,and the proportion is not high.Even if there are cross-default clauses in the prospectus,most of them have text defects,and the interpretation space is too large,which leads to the cross-default clause's failure to play the role of protection for bondholders.Through the study of the application of cross-default clauses in domestic lending contracts and the application of expected breach of contract and unease defense in bond contracts,an attempt is made to determine the specific content setting method of cross-default clauses in bond contracts.It has practical meaning.This article is divided into three parts:Part? The necessity of cross-default clause in bond contractsFor the first chapter of the text.There are two sections in this chapter.The first section starts from the application of cross-default clauses in domestic bonds,and analyzes the necessity of rigid redemption of the government of bond defaults.The second section analyzes the necessity of the protection of the bondholders' interests in the actual case.Domestic bond trading disputes involve unexpired bonds,and the main litigation claims are based on expected default or unease defense(the theoretical basis of the cross-default clause).Expected breach of contract is divided into express expected defaults and implied expected defaults.Through the analysis of relevant cases,it can be found that the express expected breach of contract,the bondholder's claim can be supported by the court,and the court does not support the impliedexpectation of breach of the lawsuit.The holder believes that the issuer's operating conditions have deteriorated,and there are many litigations.At the same time,there are other bond defaults.Combined with these facts,it is enough to prove that the issuer constitutes a standard for expressing its non-performance of contractual obligations by its own actions,and the court does not recognize it.The reason is that although the issuer defaults on other bonds,each bond issuance and redemption are independent performances.The loss of any of these bonds does not necessarily extend to other bond redemption results,and does not meet the implied expectation of default standard.Another lawsuit is based on the uneasiness of defense.From the existing cases,it can be found that although the court has recognized the right of defense,it is limited to the order of performance of the unease defense and the difficulty of not being able to perform the evidence.Some people want to use this as a basis for litigation,and it is very likely that they will not be recognized by the court because they have not met the standard of proof.Under the existing law,if bondholders want to use the expected breach of contract and unease defense as the basis for the request,due to the ambiguity of the regulations,it is highly likely that they will not be supported by the court.Thus the importance of cross-default clauses is reflected.If the cross-default clause is clearly stipulated in the bond contract,the bondholders can directly provide relief according to the terms and conditions,and they can get more effective support after entering the judicial process.Through the search and analysis of relevant cases,the results show that the court supports the claims of bondholders to increase the cross-default clause.Therefore,the cross-default clause is a valid agreement in the bond contract and is binding on the parties to the contract.Part ? Application of cross-default clauses in domestic lending contractsFor the second chapter of the text.From the two perspectives of the definition ofcross-default clause and the legal basis,the results of the judgments of the higher people's court and some intermediate people's courts examined by the author show that the court's effect on the cross-default clause is recognized,but the requirement is that the cross-default clause is included.The contract is valid and the terms of this clause are complete and clear.The main disputes are the jurisdiction,the validity of the clauses,the breach of contract(including the defaulting entity,the type of default debt,the amount of default),and the determination of liability(including early maturity settlement and guarantee clause).Part ? The design and improvement of cross-default clauseFor the third chapter of the text.Based on the application of the cross-default clause in the loan contract and the terms of the cross-default clause in the existing bond contract,from two angles of default(including defaulting entity,type of defaulted debt,amount of default)and liability(including early maturity settlement and guarantee clause)to propose a perfect point of the relevant settings of the cross-default clause in the bond contract.In turn,disputes are reduced in the event of a bond transaction,and the interests of bondholders are more effectively protected.In terms of disputes over the terms,there should be specific scope of default,the type of default debt and the amount of default debt.Finally,the remedies or liability measures after the breach of contract may also be agreed in the terms,such as the agreement on guarantee liability.Then compare and analyze the use of cross-default clauses in bond contracts.As can be seen from the example of the clause,there are more or less problems with cross-default clauses in practice.Up to now,there are still no relevant jurisprudence based on cross-default clauses in bond contract disputes.Therefore,in order to reduce disputes,the application of cross-default clauses in bond contracts still needs to be improved from the following aspects: the contractually defaulting subject,a clear type of debt,a clear amount of debt starting point,and a certain amount ofresponsibility can be stipulated,which can increase the guarantee,limit the new issuance of bonds,accelerate the expiration and so on.